Is It What You Say Or Who You Are? A Closer Look at the FTC’s Disparate Treatment of Direct Response Marketers and National Advertisers.

Written by William I. Rothbard on Monday, December 12th, 2005

By William I. Rothbard, Theodore F. Monroe, and Bradley O. Cebeci.

The Federal Trade Commission’s relentless attack on perceived deception in health-related advertising, particularly weight loss and disease-prevention claims, continues. From March 2004 through February 2005, approximately half of the consumer protection cases filed by the FTC involved allegedly deceptive health-benefit claims made by direct response/internet marketers and national advertisers alike. Yet the FTC appears to treat direct response marketers with a far heavier hand than national advertisers when it comes to the choice of remedies. Whereas the Commission regularly pursues not only injunctive relief but permanent bans and consumer redress against direct response marketers, it tends to require only “go and sin no more” injunctions, without redress, against national advertisers alleged to have engaged in substantially similar conduct. In short, the FTC appears to be picking on the “little guys” (that it may perceive to be “outside the mainstream”), making them reach deep inside their pockets, while letting Fortune 500 Companies get off with a slap on the wrist and no requirement of redress. Does this make sense? Is it fair? Consider three recent FTC cases against Kentucky Fried Chicken Corporation (“KFC”), Tropicana Products, Inc. (a subsidiary of PepsiCo), and the FiberThin/Propolene marketers, respectively.

The KFC, Tropicana and Fiber Thin Cases

Last year, the FTC accused KFC of running a false national advertising campaign which claimed that (1) eating two Original Recipe fried chicken breasts is better for a consumer’s health than eating a Burger King Whopper; and (2) eating KFC fried chicken is compatible with “low carbohydrate” weight-loss programs. The FTC contends that two KFC fried chicken breasts actually are less healthy than a BK Whopper, and that the latter claim is false because “low carbohydrate” weight-loss programs specifically advise against eating breaded, fried foods.

Then, this past June, the FTC threatened action against Tropicana over allegedly deceptive claims that drinking two to three glasses per day of its “Healthy Heart” orange juice would dramatically and measurably reduce the risk of heart disease and stroke and that clinical studies proved it.

Also in June, the FTC moved against the direct response marketers of the dietary supplements FiberThin and Propolene for allegedly exaggerating their weight loss benefits. In fact, clinical studies show that these supplements cause significant weight loss without change in diet or exercise. Nonetheless, the FTC regards these and certain other weight-loss claims (so-called “red flag” claims) as patently unbelievable and flatly prohibits them (which raises First Amendment concerns beyond the scope of this Article).

The FTC settled each of these cases by consent decree prohibiting the contested claims, and any other false or unsubstantiated health claims. True to form, however, the FTC required the FiberThin defendants to pay substantial “consumer redress” as a condition to settlement without imposing the same requirement on KFC and Tropicana.

Why This Double Standard?

These and countless other cases involving similar claims exemplify the FTC’s disparate treatment of advertisers based on their “pedigree.” Why this double standard? Part of the problem undoubtedly derives from the FTC’s own, arguably biased perceptions. Companies like KFC and PepsiCo represent the perceived “reputable establishment,” while the marketers of FiberThin and Propolene came of age in the newer, more innovative and dynamic world of direct response marketing. Admittedly there were bad actors in DR’s formative years, but the industry has now matured and taken its rightful place at the table of responsible commercial advertising. Simply put, if there ever was a basis for the FTC to “discriminate” against DR marketers, it no longer exists today.

Nothing warrants disparate treatment of companies that engage in substantially similar conduct. Fairness dictates the FTC should require direct response marketers and national advertisers to play by the same rules, and hold them equally accountable when they don’t. Indeed, FTC Commissioner Paula Jones Harbour appears to agree that national advertisers are getting off too easy, repeatedly noting the need for stronger remedies against national advertisers who would exploit consumer health concerns. Nonetheless, the FTC’s recent Tropicana settlement suggests that little has changed in this regard in the past year.

Confidence in government, including the FTC, requires that similarly situated parties be treated equally. The FTC has failed to meet this standard in its advertising enforcement efforts. To earn this confidence, it must begin to treat all advertisers – from Madison Avenue in New York to Main Street in Santa Monica – alike in its application of remedies, particularly consumer redress.

About the authors. William I. Rothbard is a former FTC attorney whose practice focuses on advertising and marketing law, and was counsel of record for defendants in the FiberThin/Propolene case discussed herein. He can be reached at (310) 314-4025. Theodore F. Monroe and Bradley O. Cebeci are litigation attorneys with the Law Offices of Theodore Monroe practicing in the areas of direct response and internet marketing law. They can be reached at (213) 622-7509.